Spain Is Losing Its People, Catalonia Fights For Independence, And The EU Gets Pushed Into The Conflict

“Do you want Catalonia to become a new state within the European Union?” That may be the question on the referendum that is causing a constitutional crisis in Spain even before the final wording has been decided. Efforts by Artur Mas, President of Catalonia, to pry his region loose from Spain are not only shaking up Spain but are pushing the European Union deeper into the conflict—just as Spain is experiencing a demographic nightmare.

A mass exodus. During the first nine months of this year, the number of Spaniards who were looking for the greener grass elsewhere jumped 21.6% from the same period last year to 54,912. And 365,238 immigrants bailed out too, for a total exodus of 420,150 people. After taking into account returning Spaniards and arriving immigrants, net migration added up to an outflow of 137,628 people—25,539 Spaniards and 112,089 foreigners. It was the first time that all 17 autonomous regions booked a net outflow of Spaniards. And Spain’s total population dropped by nearly 80,000 people! In nine months!

They left because things simply keep getting worse. September was a bad month—for the lucky ones who have jobs. They experienced the steepest plunge in purchasing power in 27 years. Prices jumped 3.4% year over year, while wages rose only 1.3%. Unions and employers had signed collective bargaining agreements earlier this year that would freeze wages in 2012 and 2013. Average wages under these new agreements rose only 0.7%—a harbinger of things to come.

This “internal devaluation”—long a factor in many Western countries, including the US—has now hit Spain. Over time, the workforce will become more competitive with cheap countries, like China. Despite its insidious impact on the population (the lucky ones who have jobs) and on consumption, internal devaluation is at the core of all “structural reforms.”

Spain exists in a surrealist new world: a debt crisis that is draining the central government and the autonomous regions, a banking crisis, unpopular “structural reforms,” unemployment of over 25%, youth unemployment of over 50%, a recession, and a population that makes its discontent known with often violent demonstrations. So, 84% of the people have “little” or “no” confidence in Prime Minister Mariano Rajoy. The fate of Alfredo Perez Rubalcaba, leader of the opposition, is even worse: 90% of all voters distrust him! Those are the two top political figures of the two major political parties, and the utterly frustrated and disillusioned Spaniards are defenestrating them both [Punishment Of The Spanish Political Class By The People].

This is the backdrop to Catalonia’s strife for independence. It all came to the forefront on September 11. Between 600,000 and 1.5 million Catalans—8% to 20% of the population!—angered by the stiff austerity measures that the central government had imposed on their bankrupt region, protested in the streets, demanding independence. Nobody could ignore that. And now, 74.1% of the Catalans support holding the referendum, 19.9% are against it, with 6% undecided. And over half of them would vote for independence.

Like the Scots, who were able to negotiate an independence referendum with the British government, Artur Mas wanted to negotiate the referendum with the Spanish government. Catalonia will hold early elections on November 25, and Mas, who is expected to renew his majority, was planning to hold the referendum during the next four years. But Rajoy and his government were in no mood to negotiate. Instead, they promised to lean on the Spanish Constitutional Court to get it to declare the referendum unconstitutional.

Then the shot before the bow. It would be a “crime,” declared Justice Minister Alberto Ruiz-Gallardón, if Mas refused to stop calling for a referendum after the Supreme Court declared it illegal—apparently, a crime of disobedience, as defined by the Penal Code, punishable by up to a year in prison and disqualification form public office by up to two years. María Dolores de Cospedal, Secretary-General of the governing People’s Party, emphasized that the government would use all “legal instruments at its disposal to prevent this situation,” adding that “there are already mechanisms in place to stop the referendum.”

The fear is enormous: Catalonia’s independence “would do away with Spain, because Spain makes no sense without Catalonia,” Gallardón lamented last week. The status of an independent Catalonia with regards to the European Union is uncertain as well. No rules exist to deal with the situation. As different officials say different things, the European Commission is being pushed ever deeper into the conflict. And it infuses the impending bailout of Spain with qualities of a Dali painting.

Neither banks nor public workers have ruined Spain—they’re just symptoms—but politicians, a separate class with special privileges born out of the “Transition” from the Franco dictatorship to democracy. And the old power structure is thriving under a new “democratic umbrella.” For a provocative analysis, by a Spaniard, of Spain’s deeply rooted institutional problems, read..... Spain’s Unfinished Transition From Dictatorship To Democracy.

And here is the corollary in the US: year by year, government has become more present where economic decisions are being made. Through subsidies, tax breaks, regulation, and spending, government has claimed a virtual seat in the boardroom of most companies. And its involvement profoundly alters decision-making for investors. Read... Navigating the US's Politicized Economy.